Prepared remarks
Thank you for standing by. And welcome to the WEX Second Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star then the 1 on your telephone keypad. I would now like to turn the call over to Pedro Alvarez, Head of Investor Relations. Sir, please go ahead.
Thank you, operator, and good morning, everyone. With me today are Melissa D. Smith, our President and CEO, and Jagtar Narula, our CFO. The press release and supplemental materials issued yesterday and a slide deck to walk you through prepared remarks have been posted to the Investor Relations section of the website at wexinc.com. A copy of the press release and supplemental materials have been included in an 8-K filed with the SEC yesterday afternoon. Before we begin, unless otherwise noted, all comparisons discussed during today's call are on a year-over-year basis. As a reminder, we will be discussing non-GAAP metrics, specifically adjusted net income, which we sometimes refer to as ANI, adjusted net income per diluted share, adjusted operating income and related margin, as well as adjusted free cash flow during our call. Please see the exhibits of the press release and the earnings supplement for an explanation and reconciliation of these non-GAAP measures. The company provides revenue guidance on a GAAP basis, and earnings guidance on a non-GAAP basis due to the uncertainty and indeterminate amount of certain elements that are included in reported GAAP earnings. I would also like to remind you that we will be discussing forward-looking statements under the Private Securities Litigation Reform Act of 2000. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in the press release, the supplemental materials and the risk factors identified in our most recently filed annual report on Form 10-K and subsequent quarterly reports filed on Form 10-Q and other subsequent SEC filings. While we may update forward-looking statements in the future, we disclaim any obligation to do so. You should not place undue reliance on these forward-looking statements, all of which speak only as of today. With that, I will turn the call over to Melissa.
Thank you, Pedro, and good morning, everyone. We appreciate you joining us. I am going to start on Slide 4 of our earnings presentation today. The second quarter built on the momentum we established earlier this year. We exceeded the high end of our guidance range for both revenue and adjusted net income per diluted share. Excluding the beneficial impact of fuel prices and FX, we delivered on our expectations with strong execution across the organization. New sales momentum is building, and customers are increasingly focused on controlling expenses by leveraging our industry-leading platform. We are progressing across each of our strategic pillars and our organic investments are delivering. Our balance sheet remains strong with leverage back below 3 times and we are prioritizing our strong cash generation towards returning capital to shareholders in the near term. We are repurchasing shares at what we believe are attractive levels, reflecting our confidence in the plan and the value we see in our business and assets. There is a lot to be excited about as we look forward to the second half of the year. In corporate payments, volume growth in our direct AP channel is expected to remain in the mid-teens after reaccelerating to 20% this quarter. In benefits, our early sales pipeline for 2027 looks healthy. We have real opportunities in our operations platform to be more efficient with AI. In mobility, we are seeing a stabilization of transaction trends, near- and long-term pricing opportunities, and ongoing opportunities to expand margins. Combined, these factors give us confidence in our investment strategy and execution as we expect to exit the year within our long-term organic revenue growth range of 5% to 10%. Let me walk you through the second quarter results and point you to Slide 5. Revenue for the quarter was $753.5 million, an increase of 14.2%. Excluding fuel prices and foreign exchange, revenue grew 4.2%, which was at the midpoint of our guidance for the quarter. Adjusted net income per diluted share was $5.35, up 35.4%. Excluding fuel prices and foreign exchange, adjusted EPS grew 10.1%, at the high end of our guidance range, reinforcing our ability to leverage top-line growth into even stronger earnings growth. Cash flow remains a continued source of strength and we generated $696 million of adjusted free cash flow on a trailing 12-month basis. This allowed us to reduce leverage to 2.9x and resume share repurchases in the quarter ahead of schedule. Turning to Slide 6, let me remind you of our three strategic pillars: amplify our core, expand our reach, and accelerate innovation. These pillars are the foundation that we believe will allow us to deliver sustainable and profitable growth over the long term while remaining laser-focused on our customers. Each pillar is powered by organic investments, product development, and the strength of our sales and marketing efforts. Let me take a moment to highlight how we are progressing against them as we pass the midpoint of the year on Slide 7. Our first pillar, amplifying our core, centers on continuing to grow in our core markets by leveraging our strengths which include proprietary data and technology tools, compliance and regulatory capabilities, including WEX Bank, deep industry expertise, advantaged positioning in the payments ecosystem, scale, and deep customer and partner relationships. Within this pillar, we are focused on executing across the business to delight our customers, accelerate growth and strengthen margins. We measure success by delivering on profitable new growth. In the first half of the year, we saw strong new sales to support this. For example, in benefits, we are lining up a healthy early pipeline for 2027 after completing an excellent open enrollment season for 2026. In mobility, we have been executing on fundamental priorities amid challenges in the macro environment. And in corporate payments, our pipeline is continuing to build momentum in our direct AP business. There are two important points here. First, we are carefully looking at pricing levers across the portfolio. We plan to continue to thoughtfully execute on opportunities in the back half of the year, including new pricing actions in mobility that we expect to result in $15 million of additional revenue in 2026. Second, we are balancing those pricing actions with a focus on improving profitable retention across the business by proactively engaging with our customers to keep our value proposition at the forefront. In benefits, the first half of the year included two enhancements to our core offering, driven by customer feedback. First, we introduced the WEX HRA GLP-1 medications. This is a defined employer-funded benefit that sits outside the core health plan, giving employers greater flexibility and control over GLP-1 benefit costs while maintaining access to weight management options for employees. Additionally, we partnered with DoorDash to enable FSA and HSA participants to add their WEX benefits cards directly to their DoorDash wallets, allowing them to use pretax dollars for eligible health essentials with same-day delivery. This makes it easier for consumers to access eligible health care products when they need them, while continuing to embed WEX into everyday use. Our second strategic pillar, expanding our reach, empowers us to enter new markets where we have a clear right to win and where our differentiated assets allow us to create tangible value. This pillar is foundational to how we accelerate growth as a company, and we are investing in both product development and our go-to-market approach to move deeper into large and profitable markets with ample greenfield opportunities. Let me touch on our non-travel business and corporate payments as a clear example. Within non-travel, we are focused on diversifying the business through both our direct AP offering and continuing to expand our industry-leading embedded payments virtual card offering outside of travel. These two growth vectors are core investment priorities in this segment. As I mentioned earlier, Direct AP growth accelerated in the quarter and our embedded payments pipeline remains strong. Outside of corporate payments, let me touch briefly on mobility, where we continue to see success marketing to smaller fleets in our North American business, many of which do not currently have a fuel card solution. In our over-the-road business, TenFour by WEX has seen significant user growth as fuel prices increase and operators look for easy-to-access fuel discounts. As a reminder, we have positioned TenFour to play two roles to maximize our reach. It acts as an on-ramp for some customers to join the WEX platform in the future, but for fleets that are not interested, or not eligible for a fuel card product, it provides another way to monetize those relationships without taking on additional credit risk. The last pillar in our strategic framework, accelerating innovation, enables us to deliver better products at a faster pace while driving efficiency and operating leverage. Here, we focused on initiatives that transform what we offer and how we run our business. This is a pillar I am especially excited about because of the tremendous potential. We are leveraging customer feedback and AI to drive targeted new products and service development. AI is deeply integrated in everything we do, and has been for several years. We believe we are well positioned and ahead of the curve with a long history of proprietary data to fuel value-added client offerings. Turning to Slide 8, I will touch on how we are progressing. A recent example of how we are accelerating innovation through AI is in mobility, where a new premium offering, AI Insights, is currently in beta with customers. By combining WEX's proprietary transactional fleet payment data with AI, we are delivering actionable recommendations that help customers proactively identify potential misuse, uncover savings opportunities, understand spending trends, coach driver behavior, and improve fleet performance. Our goal here is to help customers move from reactive reporting after an issue occurs to proactive decision-making powered by AI. Another area where early investments in AI bore tangible fruit in the first half of the year is within our credit adjudication functions in mobility. As fuel prices rose, credit demand increased across the business, and our AI-powered credit tools allowed us to make faster and smarter decisions for customers in the time of need. These tools allowed us to act quickly, without increasing risk, and we saw those results in Q2. We talked before about how AI is helping to process claims faster, power development and coding, and empower our teams to work more efficiently. All of those trends are continuing. Looking ahead to the second half, we are going to continue to tackle parts of the business that would benefit most from automation. We are committed to delivering more than 100 basis points of macro-neutral margin expansion in the back half of the year as part of our plan to deliver 75 basis points for the full year. To close on our strategic pillars, I am proud of the work our teams are doing to position WEX for success now and in the future. Turning now to capital allocation on Slide 9. Our approach has not changed, and our near-term priorities reflect our clear focus on maximizing shareholder value. We are continuing to reinvest organically in our business by evaluating opportunities on a risk-adjusted returns basis to prioritize investments with the highest tangible accretion potential. This includes continuing to strengthen our core offerings to maintain and grow our competitive advantages, while also investing in new products and markets that will accelerate growth. Now that we have achieved our leverage goal of less than 3x and did so quicker than anticipated, we are in a stronger position to return more capital to shareholders. Given WEX's current multiple and our confidence in the long-term growth trajectory of our business, we are currently prioritizing buybacks. In the near term, you should expect us to direct the vast majority of adjusted free cash flow to share repurchases while using the rest to delever, subject to notable changes in market conditions. Between May and July 20, we repurchased approximately $93 million of shares, including approximately $60 million during the second quarter. Finally, I want to briefly touch on our annual meeting in May. I want to take this opportunity to welcome our new board members and reiterate that the full board and management team are aligned with a singular focus on maximizing value at WEX. We are moving forward with that unified purpose. This shared focus is reflected in how we manage the business every day. Our commitment to maximizing shareholder value includes routinely evaluating our portfolio and assessing the near- and long-term potential of each of our businesses and their component parts. This is an important piece of our annual strategic planning process, which is already underway, and helps us allocate our resources to opportunities that create the most long-term value. I will close by saying that our results would not be possible without our employees. I want to thank our team for their hard work and commitment this quarter. Forbes recently recognized WEX as one of America's Best Employers for Company Culture, and I believe that recognition reflects the talented team and strong culture that continue to power our strategy, innovation, and customer impact. With that, I will turn it over to Jagtar to walk through our financial performance, segment results and updated outlook in more detail. Jagtar?
Thank you, Melissa, and good morning, everyone. We delivered both solid revenue and earnings growth in the second quarter, with each of our segments performing well. The momentum we have built in the first half of the year is a great start, and we expect it to continue into the second half as we remain focused on accelerating growth and operational efficiency. Total revenue in the quarter was $753.5 million, up 14.2% and above the top end of the guidance range we provided last quarter. The impact of foreign exchange rates and fuel prices increased revenue growth by 10%. Excluding those macro impacts, revenue was at the midpoint of the guidance range we provided last quarter. Adjusted earnings per share was $5.35, an increase of 35.4%, with 25.4% of that growth driven by the impact of fuel prices and foreign exchange rates. Excluding those factors, adjusted EPS was at the top end of the guidance range we provided last quarter. I will add that we restarted repurchasing shares during the quarter and brought back approximately $60 million in shares that added about $0.01 to Q2 EPS. Repurchases continued in July and through the 20th, we have repurchased another approximately $33 million. Moving on to margins. Q2 adjusted operating margin increased approximately 280 basis points, driven primarily by the increase in fuel prices in the quarter. Credit losses increased from 13.5 basis points to 16 basis points, better than the range we had guided to last quarter. Our expectations from here are that we will see year-over-year margin improvement of more than 100 basis points in the back half of the year on a macro-neutral basis as part of the plan to hit 75 basis points for the full year, and we have embedded that into our guidance. Let me now walk you through the segments, starting with mobility, which delivered a very strong quarter. Revenue increased 22% or 3.1% excluding FX and PPG. We are pleased to report that the BP portfolio was fully online this quarter following a successful migration. Lower late fee instances reduced growth slightly, by approximately 1%, which we believe was due in part to changes in customer behavior. We found customers adapting their payment behavior in light of high fuel prices that resulted in larger invoices. Overall, this behavior change was more than offset by the significant fuel price tailwinds in the quarter. Continuation of this behavior is contemplated in our guidance and we expect it to be offset by both planned second-half pricing changes and continued momentum in the business. We are also encouraged to report that payment processing transactions were flat year over year and increased 6.8% sequentially, which is another encouraging indicator of improving activity in the underlying segment. Touching on credit performance, credit losses were better than we expected. We plan for loss rates to decline throughout the year, and we are seeing that positive trend slightly faster than we expected. As a reminder, Q2 includes provision increases due to the higher fuel prices driving higher loss dollars per instance. To close mobility, we are very pleased with the results we delivered this quarter. We are also encouraged to see the supply-side recovery taking hold in the trucking sector. This has increased trucking spot rates, helped truckers manage the impact of higher fuel prices, and benefited revenue in our factoring business and credit overall. However, as the supply side has improved, the demand side, which impacts our volumes, is still constrained by broader economic conditions. We remain focused on executing on the things we can control and are well positioned to benefit from the future demand-side recovery in the trucking sector. Moving to benefits, total revenue of $206 million rose 5.6%, reflecting the strong open enrollment season Melissa mentioned earlier. Overall, SaaS account growth was 2.2% in the quarter, in line with expectations and reflecting a difficult comparison as we lap the addition of the large UAW portfolio in the second quarter of last year, along with the impact of the previously disclosed Q1 account closures which were immaterial to both revenue and income. The benefits segment continues to capitalize on both the scale we have built and the value derived from our investment portfolio at WEX Bank, which allows us to deliver industry-leading returns on our HSA assets. Average HSA custodial cash assets grew 11.1% in the quarter, and custodial investment revenue grew 11.4%. HSA accounts also grew 7%. Overall, we are very pleased with the performance of the segment. Moving on to corporate payments, revenue of $125.1 million increased 5.8% at the high end of our expectations, with our net interchange rate expanding five basis points. Total travel volume increased 6.4% and we are seeing continued strength in our travel customers despite the uncertainty associated with higher fuel prices and the Middle East conflict. Segment purchase volume declined 3.6% primarily due to quarter-to-quarter timing of travel volumes from a large OTA customer. As a reminder, two-thirds of revenue from our travel business sits outside of our top five OTAs. Beyond our travel business, we continue to see healthy pipelines from both our non-travel embedded payment and direct AP businesses. Growing these products is part of our strategy to accelerate growth by expanding our reach into new markets. As Melissa mentioned earlier, volume growth in our direct AP business reaccelerated to 20% this quarter and is expected to continue to grow in the mid-teens for the remainder of the year. Direct AP today contributes approximately 20% to segment revenue. With that, let me transition to the balance sheet. WEX is a business that generates strong recurring revenue which in turn produces reliable free cash flow. On a trailing 12-month basis, we have generated $696 million of adjusted free cash flow, a 22% increase. Our ability to generate strong cash flow across market cycles gives us significant capital deployment capacity. We also benefit significantly from WEX Bank, which provides low-cost funding through deposits and Federal Home Loan Bank lines. It is important to note that the bank gives us a lower cost of funding versus alternatives such as securitizing our receivables. In addition, as we have mentioned before, WEX Bank also helps us drive higher yields in our HSA assets through its investment portfolio. Touching on leverage, we closed Q2 with a leverage ratio of 2.9x, placing us inside our target range of 2.5x to 3x. Let me add a few points to what Melissa talked about earlier regarding capital allocation, a focus of every investment decision we make at WEX. Each step of our disciplined capital allocation process is grounded by a clear objective to maximize long-term shareholder value and every investment decision we make is weighed against returning capital to our shareholders, including internal investments in our segments. As Melissa noted, we expect to return the vast majority of our adjusted free cash flow to shareholders in the near term through share repurchases. We believe this is currently the best use of free cash flow we are generating after organic investments. To be clear, we remain committed to operating within our 2.5x to 3x leverage range target given the strength and durability of our cash flow and we will continue to apply a returns-based rigor to our share repurchase activity. Should market conditions notably change, we will adapt our strategy accordingly. Now let's move to earnings guidance for the third quarter and the full year. In Q3, we expect to generate revenue in the range of $733 million to $753 million. We expect adjusted net income EPS to be between $5.45 and $5.65 per diluted share. For the full year, we now expect to report revenue in the range of $2.86 billion to $2.9 billion. We expect adjusted net income EPS to be between $19.68 and $20.08 per diluted share. Compared to the midpoints of the previous ranges, these represent increases of $32 million in revenue and $0.63 in EPS. These increases are largely driven by the outperformance in Q2, share repurchases in the quarter, and higher fuel price assumptions for Q3 and the full year. On the interest rate side, we are not assuming any changes for the rest of the year. On an ex-macro basis, we are expecting to exit the year within our long-term organic revenue growth range of 5% to 10%. Lastly, consistent with our past practice, we are not factoring the impact of share repurchases beyond Q2 into our guidance. As I noted, we expect to return the vast majority of adjusted free cash flow through repurchases in the near term, which would provide an additional tailwind to EPS in the back half of the year with the magnitude depending on timing. In closing, we are pleased with our performance in the second quarter and the momentum we are seeing across the business. As we enter the second half of the year, we remain focused on disciplined execution, thoughtful capital allocation, and continuing to drive long-term value for our shareholders. With that, operator, please open the line for questions.
Questions and answers
At this time, if you would like to ask a question, press star then the 1 on your telephone keypad. To withdraw your question, simply press 1 again. Your first question comes from the line of Sanjay Sakhrani with KBW. Please go ahead.
Thank you. Good morning. Melissa, maybe you could talk a little bit about some of the green shoots we see in the trucking indices like the CAF freight index?
Sure. Thanks, Sanjay. If you look across the business, one of the things I want you to keep in mind is our over-the-road business. We represent the whole segment, including very large over-the-road customers as well as mid-market businesses. What we have seen is a nice recovery on the supply side. There had been an oversupply in the space and that has worked its way through. The larger customers in our base are benefiting because they are picking up value from some of the people that have left the marketplace. But overall, we are not seeing more miles driven. The way that is coming through in our business right now is a pickup in rates, particularly in the factoring business, which is a small part of what we do. Better credit losses are flowing through, which is a combination of the work we have done on the risk side and the fact that we are seeing better quality customers in the marketplace. But we are not seeing that impact volume. As we have given our guidance for the year, we have assumed that this macro state will continue through the end of the year and that we are not going to see a rebound. If to the extent we do see a rebound, that would be upside to us.
Okay. Great. Thank you for that clarification. And then that is great news on the buyback. I am curious, maybe, Jagtar, you can help in terms of free cash flow conversion. How should we think about free cash flow as a marker for how much you would consider buying back? Also, with respect to delevering, maybe you could give us some sense of what those numbers look like as we progress annually. Thank you.
Yeah. So we typically generate around $600 million to $650 million of free cash flow annually, Sanjay, a little bit more weighted to Q2 through Q4. It generally closely tracks adjusted net income, so that is the right way to think about it. As far as delevering, the vast majority of our adjusted free cash flow is going to go to share buybacks. We will use a modest amount for deleveraging. Specifically, we know fuel prices are in an elevated state right now and are going to decline. We just want to do some slight deleveraging so we are in a position to continue buybacks as fuel prices come down. But the vast majority will really go toward buybacks.
Okay. Wonderful. Thank you.
Your next question comes from the line of David Koning with Baird. Please go ahead.
Hey, guys. Thanks so much. In the corporate payments business, the vast majority of revenue is driven by volume and yield. Volume was down 4% as you mentioned, but yield was up really nicely. Does volume get better from here and what happens with the yield in coming quarters so we can understand the balance?
There are a couple of things that happened within the quarter. We had one of our larger OTA customers move some volume from the second quarter into the second half of the year, so some of that is just timing. Second, another contract we have had in place for a while pays us a minimum, which affected volume as well. Those two things combined had about a 5% impact on volume versus what would have been normal for us in the quarter. We benefit from mix as well: two-thirds of our travel business revenue comes from customers outside of the top five OTAs. We have seen a benefit from that mix given who spent in the quarter. I would encourage you to look at total volume, not just funded volume, because more of our business has moved into an unfunded model. We are thinking about it in totality.
Gotcha. And then as a follow-up, in mobility, growth was stable on a constant macro basis but BP helped a little, so underlying it seems slightly decelerated. In the back half, you probably get a 2% lift or reacceleration from pricing based on the $15 million you described. Is that about right?
Just to add a little bit, as we expect purchase volumes to increase in the back half of the year, we will see kind of high single-digit to low double-digit rates. We would expect the rate to dip slightly as a result of mix as we move more embedded and more travel customers. If we get more travel volume in Q3, that affects rate. That is largely mix related.
If you look at the mobility business sequentially, also look at transaction growth. We went from negative 2% to slightly positive in the quarter. About half of that was related to BP and the other half was related to the pickup from investments we have made. We are seeing that translate into incremental volume growth. Revenue was impacted by late fee behavior sequentially: as fuel prices went up, customers paid more frequently, and some who tended to be slightly late paid on time, which had a a couple of point negative impact on the segment for the quarter. Overall, we are a net benefactor of what happened with fuel prices. We saw a big positive within the segment, which allowed us to buy back stock sooner.
All good. Thanks so much.
Your next question comes from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.
Hi. Thanks so much. On the comment about accelerating organic growth to exit the year at 5% to 10%, can you go through the visibility into that? Pricing is a piece of it, but what are the other big factors behind that acceleration?
Thanks, Tien-Tsin. We have taken a number of high-quality actions this year that we expect to continue to pay dividends. In mobility, pricing is part of it: we have already notified customers of pricing actions that will bring $15 million in the second half. We have stabilized volume trends, in part due to the benefits of investments and the BP conversion. In corporate payments, our investments in embedded payments outside of travel and AP Direct are showing strong growth and strong pipelines. Those are starting to convert into revenue and will become a bigger part of the segment. In benefits, the pipeline for 2027 continues to look healthy. All of these things give us confidence in exiting the year in that 5% to 10% range. The improvement is coming from across all three segments, and you are starting to see operating leverage from scale. This allows us to compound incremental revenue growth with earnings leverage, combined with buybacks, which positions us well.
Perfect. One more question: the incremental margins in corporate payments were quite high this quarter. Anything unusual driving that step-up, and how should we consider it for the second half?
Two things happened in the second quarter. We saw incremental volume and we saw rate positivity, particularly in this quarter, which provided high drop-through. On top of that, we had some credit losses a year ago that provide a favorable year-over-year comparison. We do expect to continue to have strong margins through the rest of the year.
Your next question comes from the line of Nate Svensson with Deutsche Bank. Please go ahead.
Hey. Thanks for the question. Nice to hear about the pricing in mobility. In the prepared remarks you mentioned 120,000 customers received proactive credit limit increases due to higher fuel prices. Can you talk more about the credit box beyond fuel-price fluctuations? Is there opportunity to continue expanding the credit box regardless of how fuel prices trend? Is customer health improving enough to expand credit, or do you need to see more?
There are two pieces to how we think about this. First, our automated AI tool increases credit for our highest-quality customers when it detects large fuel price fluctuations; this is tied into our risk models and automatically adjusts lines. The reverse is true if fuel prices decline. Second, our risk teams work with commercial teams to surgically extend credit, an active engagement tied to financial performance. We monitor portfolio performance to inform marketing and credit decisions. The immediate, easier changes were done quickly; the next level of adjustments we are making systematically across the portfolio.
Understood. Thanks, Melissa. On direct AP volumes, it's nice to see reacceleration to 20% with an expectation of mid-teens for the rest of the year. Can you provide qualitative color on where you are winning accounts, where you will keep investing, and how much of the reacceleration is underlying growth versus lapping seasonal volumes from larger customers?
When we put our guide out at the beginning of the year, we said we expected mid-teens growth in Direct AP volume, and we continue to expect that in the second half. The sales team is doing a great job bringing new customers. We have been using an AI-based lead-generation tool we piloted in corporate payments that has worked well and is being rolled out elsewhere; this has helped our second-quarter success and improved lead identification. There is not a single vertical in Direct AP; our offering can apply across many customer types. On the embedded payments side, we tend to target more verticals, particularly fintechs and companies that need to add payments as part of their business model. Those areas often require vertical focus.
To add, the split of the growth in Direct AP was roughly one-third from over-the-road and two-thirds from new business. On the over-the-road side, we saw some lightness last year as we lapped seasonality and have seen acceleration from a couple of big clients. We also invested in new business development, hiring more salespeople who have ramped and delivered good new business at strong volumes and rates. Credit metrics have been strong and are dropping through to the bottom line.
Nice to hear. Thanks, Melissa and Jagtar.
Your next question comes from the line of Madison Suhr with Raymond James. Please go ahead.
Hi. Good morning. Are higher fuel prices driving any acceleration in the sales pipeline for fuel cards, particularly for SMB customers who historically have not used fuel cards and may be trying to offset higher fuel costs?
We have not seen a high correlation between higher fuel prices and new fuel-card sales broadly. The area that has seen more demand is TenFour, which allows owner-operators and smaller fleets access to our discount network, and TenFour has benefited from customers seeking fuel discounts. But outside of TenFour, our products work in many environments, and demand does not show a strong correlation to fuel-price swings.
Thanks. One follow-up: the large OTA customer went through a business model transition and now sits outside purchase volume. How is that relationship progressing and any color on how you are growing with that customer now that the transition has occurred?
We have a great relationship with that customer. We have been actively working with them on international opportunities where we can meet compliance requirements to issue and settle in other countries, such as Brazil. We are also exploring other parts of their model where we can provide services to meet their needs, and we have seen some benefit from those efforts.
Your next question comes from the line of Michael Infante with Morgan Stanley. Please go ahead.
From a competitive perspective, what are you seeing with respect to a key competitor that has seemingly been targeting some of your middle-market customers? And as full-service suite management companies expand within the middle market, how should we think about potential impact on unit economics and where you sit relative to fleet management companies and how that might impact take rates?
Competition has been present for a long time. We emphasize our closed-loop proprietary network, which enables higher-quality tools for customers to manage misuse, optimize decisions, and derive value. This is part of what we are offering with our new AI product in beta. We have a broad customer base including large, mid-market, and many small accounts—our average customer is about a 15-vehicle fleet. We see competition across all categories, including mid-market. We are focused on retention and growth in mid-market, as well as the small end, which is part of why you're seeing sequential pickup in transaction volume as those efforts yield results.
Got it. One follow-up on benefits to Jagtar: the average SaaS account growth is around 2%. When you back out the UAW drag and the account closures, is that in line with expectations? Is there anything else impacting account growth beyond UAW, and do you expect acceleration throughout the rest of the year?
Yes, it was in line with expectations. Last quarter we communicated the UAW impact, which was about a 150-basis-point quarter-over-quarter drag in account growth. We also closed some low-value accounts that didn't impact revenue but did impact account counts by about 200 basis points. Net of those items, account growth performed as expected. We generally expect accounts to increase modestly over the course of the year, both in absolute terms and as a slight percentage increase, and we remain busy preparing for open enrollment season for next year.
Your next question comes from the line of Mihir Bhatia with Bank of America. Please go ahead.
Good morning. On mobility, trends have improved but your mobility volumes remained a bit below some external trucking indicators. Beyond supply-side recovery and demand-side weakness, are there specific sectors or customer segments where you may be over-indexed that explain the discrepancy? Essentially, is WEX gaining, holding, or losing share in mobility today?
Good question. In the over-the-road business, our large accounts are benefiting from supply leaving the marketplace; spot rates have improved and customer health is better. We are not seeing increases in miles driven; drivers are not necessarily moving more freight. We have visibility into where our customers fuel and how our volume trends compare to broader networks, and we feel confident we are continuing to take market share in that space. In the North American mobility business, same-store sales weakness is consistent across the portfolio. New customer wins are being offset by that same-store weakness and normal attrition. Net-net, we feel confident and have good insight in over-the-road that we are taking share.
Thanks. On margins, you called out more than 100 basis points of macro-neutral margin expansion in the back half. Looking two years out, do you see a path toward a structurally different margin profile for WEX as AI and other efficiencies scale? Will margins continue to improve over the next several years?
It is a question we discuss frequently. Our headcount has actually come down since 2023 while revenue has grown. We believe AI can create additional margin expansion across the enterprise. We have seen benefits so far in development and product teams, and we are targeting operations areas where automation can improve customer experience at lower cost. We have evidence of benefits, though many initiatives are still early-stage. We do believe this will be a meaningful part of margin expansion going forward.
Your next question comes from the line of Darrin Peller with Wolfe Research. Please go ahead.
Can we clarify mobility versus Q1 specifically? I understand there was about a 2-point headwind to revenues from lower-than-expected late fees. From our math, year-over-year revenue growth decelerated sequentially excluding late fees even with transaction growth accelerating. Was this due to fewer miles driven or any other dynamics?
Darrin, it was largely late-fee driven. Late fees were about a two-point drag to the segment from what we would have expected on a normalized basis and impacted by fuel prices. If you look at Q2 results, roughly three points of growth: about one point from pricing, one point from BP, and one point from underlying growth. The underlying growth did what we expected and the drag came from late fees.
Okay. One more on corporate payments: virtual card acceptance has been a larger debate with recent changes like Meta and Amazon. Any broader changes in acceptance behavior you are seeing? Is that factored into your outlook, or is it not a material issue for you?
This has been an industry conversation for years. We see vendor suppression in very small parts of our business occasionally. For us, it is minor compared to others because many of our merchant customers are accustomed to receiving credit or debit, and they accept interchange. We see suppression occasionally in our bill-pay business and sometimes with AP Direct, and we have factored that into our guidance. It has not been a large headwind for us in any period; it relates more to the mix of customers in our portfolio.
Okay. Thanks very much.
That concludes our question-and-answer session. I will now turn the call back over to Pedro Alvarez for closing remarks.
Thank you. We would like to thank everyone for your time and participation in today's call. I am available afterwards for any questions you may have that we did not get to. Thank you very much, and have a great day.
Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.